Who owns coal seam gas in New South Wales (and who can stop it being mined)?

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Disclosure statement

Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Earlier this week, Marrickville City Council in suburban Sydney blocked an attempt to mine coal seam gas on privately owned land in the inner-city area of St Peters. The Council imposed a condition on the development application order for the land, purporting to ban the land being used for coal seam gas mining. This ban raises a number of important issues: who owns the CSG under private land, and what does the decision mean for other NSW councils opposed to CSG mining?

Dart Energy holds numerous exploration licences across Sydney (including at this St Peters site, where the land is owned by Dial-a-Dump). These licences have been granted in accordance with Part 3 of the Mining Act 1992 (NSW). The validity of the exploration licence and the power to carry out exploratory drills for coal seam gas is, in turn, premised on the notion that coal seam gas is a mineral that comes within the scope of this Act.

The development application and the subsequent condition was imposed by Marrickville City Council because of the power it has under Part 3 of the Environmental Planning and Assessment Act 1979 (NSW)(EPAA). This act authorises a council to issue development applications in accordance with local environment plans. But there are a number of reasons why a condition attached to a development application which purports to ban mining would be ineffective.

This condition is arguably outside the scope of the EPAA and the relevant local environment plan. Any such condition would be inconsistent with rights already conferred upon Dart Energy as part of its exploration licence (issued under the Mining Act 1992 (NSW)). And the condition would, if valid, only apply to the landowner and not the the licence holder, Dart Energy.

The condition may result in the landowner, Dial-A-Dump, having limited powers to enter into a land access agreement with Dart Energy. But it could not in itself stop Dart Energy from exercising rights provided by its exploration licence.

The prominence of this dispute indicates the strong level of community concern regarding the proliferation of coal seam gas mining throughout New South Wales. It also raises more fundamental questions concerning the ownership of coal seam gas in New South Wales. These issues are not entirely straightforward.

The starting point for assessing ownership issues lies in the basic common law principle that ownership of private land extends up to the heavens and down to the centre of the earth (cuius est solum eius est usque ad coelom et usque ad inferos). This principle means that the private landowner has complete ownership over the physical land and the minerals contained within that land as well as the space above that land. The breadth of this concept is, however, subject to three qualifications.

First, the private owner has never owned what are known as the “royal minerals” of gold and silver. These are owned by the Crown.

Second, many states have introduced specific legislative provisions to give the state ownership of sub-surface minerals. This has occurred, for example, in Victoria, where legislation (s9 of the Minerals Resource (Sustainable Development) Act 1990), confers ownership of all minerals, other than exempt minerals, upon the State of Victoria. A similar vesting provision used to exist in New South Wales (s5 of the Coal Acquisition Act 1981 (NSW)). It also exists in section 6 of the Petroleum (Onshore) Act 1991 (NSW), a provision which also expressly sets out that no compensation is payable by the Crown for the effect of that vesting.

The Coal Acquisition Act 1981 (NSW) was introduced by the New South Wales Government at the time so that lucrative coal royalties could be collected from private landowners. Over the life of the scheme, these royalties amounted to approximately $10.5 billion.

Private land-owners affected by these vesting provisions could apply for compensation, and a Coal Compensation Board was set up to administer these payments. Over the life of the scheme the board paid millions of dollars in compensation. In 2007, these acts were repealed and any minerals which belonged to private landowners prior to the statutory re-vesting reverted back to those owners. The effect of this repeal was that any minerals which belonged to private landowners prior to the statutory re-vesting reverted back to those owners. No similar compensation regime was set up with respect to the Petroleum (Onshore) Act 1991.

The third qualification is that many land grants issued by the Crown in New South Wales are subject to reservations that prevent minerals in the land from passing with that land. Minerals which have been reserved by the Crown will never pass to the landowner. These are defined in the Mining Act 1992 (NSW) as “public minerals”. Any sale, lease or other disposal of Crown land does not include any minerals contained in the lands.

The combined effect of the first and third qualification means that in New South Wales, most minerals may now be regarded as owned by the Crown. However, minerals which are not royal minerals or which have not been reserved by the Crown will continue to be owned by the landowner. To this extent, the common law right of a freeholder to minerals in his or her land has not been impaired.

The difficulty with coal seam gas is is one of characterisation. The general assumption is that the Petroleum (Onshore) Act 1991(NSW) applies to vest ownership of csg in the Crown. Arguably, however, if csg is regarded as a constituent of the coal and if the absence of any explicit reference to csg in the definition of petroleum under the Petroleum (Onshore) Act 1991 supports this argument, it is possible that some landowners may retain ownership of csg in NSW. This is because the Mining Act 1992 (NSW) does not vest ownership of coal in the Crown and, in the absence of a mineral reservation in the title, the landowner may rely upon the common law rule.

Cases in the United States have taken differing approaches to the characterisation of coal seam gas. Some have argued that coal seam gas is an inherent part of the coal, because it is absorbed onto the coal and the bond is so close that the two cannot be separated. Others have argued that the chemical composition of coal seam gas is nearly identical to that of natural gas, and therefore coal seam gas retains its independent identity as a gas rather than a solid mineral.

Both arguments have been supported by cases in the United States. In Carbon County v. Union Reserve Coal Co, the Montana Supreme Court overturned an earlier decision and concluded that coalbed methane gas “is separate from coal and is not a constituent part of the coal estate”. By contrast, in Vines v. McKenzie Methane Corp. (1993) 619 So.2d 1305, the court concluded that the production of CBM is ‘inextricably intertwined’ with coal mining and that the right of “all coal” signifies the ownership of the coalbed methane gas.

If coal seam gas is characterised as a constituent of coal, and if a land-owners title in New South Wales does not contain a mineral reservation, that landowner may claim ownership.

This article was updated in May 2012 to clarify the role the Petroleum (Onshore) Act 1991 (NSW) could have on the ownership of CSG in New South Wales.